(Updates with Jet Air shares in 14th paragraph.)
Feb. 3 (Bloomberg) -- India had its airline-safety ranking downgraded by the U.S. Federal Aviation Administration after the South Asian nation failed to find enough officials to ensure safe operation of flights, putting the country on a par with Zimbabwe and Indonesia.
Other countries may follow suit with their own restrictions, hurting expansion plans at Jet Airways (India) Ltd. and Air India Ltd., and that increased scrutiny may also cause delays. Indian authorities will hire 75 flight operation inspectors and provide training to more people to win back the rating, Civil Aviation Minister Ajit Singh said Jan. 31.
The FAA cut the grade to Category 2 from Category 1 after a review of India’s aviation regulator revealed that its safety oversight processes don’t meet global standards. The starting of new carriers and billions of dollars in new aircraft orders meant the world’s second-most populous nation couldn’t employ enough people to monitor safety, Singh said.
“It’s a humiliation,” said Mark Martin, chief executive officer of Dubai-based Martin Consulting LLC. “There are 1.2 billion people in this country and still we can’t get qualified people for a regulatory authority. The bigger humiliation is to have the FAA tell us about it.”
The FAA found deficiencies at India’s Directorate General of Civil Aviation in December 2012, according to a statement from the U.S. regulator. It again held consultations with the DGCA and Indian ministries last year and in January. India had won the Category 1 rating in 1997.
The DGCA struggled to find adequate staff because of the rapid expansion of carriers, Singh said in New Delhi Jan. 31.
The downgrade occurs against a backdrop of some tensions in the U.S.-India relationship, including the spat over the arrest of an Indian diplomat in New York. The FAA move could hurt expansion plans of Indian carriers as other countries may follow suit with their own restrictions, said Amber Dubey, the India head of aerospace and defense at KPMG.
Japan’s Civil Aviation Authority will talk to the FAA and Indian officials before arriving at any decision, Shigeru Takano, the agency’s director in charge of air transport safety, said by telephone today.
The FAA move is of “significant interest” to the European Union, though there isn’t any direct link between the EU safety list and the U.S. program, the European Commission said. Indian carriers’ operations are monitored through the Safety Assessment of Foreign Aircraft program, and there is no immediate or major concerns regarding their safety, it said.
The U.S. move could mean heightened surveillance at airports in that country for Indian flights, which could impact airline schedules, said Kapil Kaul, the South Asia head at CAPA Centre for Aviation.
“It might also affect foreign passengers’ perception about Indian safety,” Kaul said.
State-owned Air India operates about 21 services to the U.S. The carrier is set to join the Star Alliance later this year. The FAA decision isn’t likely to affect this plan, Singh said. Air India spokesman G.P. Rao declined to comment.
Jet Airways, which sold a stake to Abu Dhabi’s Etihad Airways PJSC after India eased aviation investment rules, operates seven flights to the U.S. United Airlines said hours after the FAA announcement that it’s suspending a marketing agreement with Mumbai-based Jet Airways.
Shares of India’s second-largest carrier by market share fell 6.5 percent to 221.40 rupees in Mumbai trading, the lowest level since January 2012.
The FAA doesn’t support reciprocal code-share arrangements between airlines in Category 2 nations and U.S. carriers, according to its website. Ragini Chopra, a spokeswoman for Jet Airways, didn’t respond to a call and an e-mail seeking comments.
The DGCA expects to resolve FAA’s concerns by March, Singh said. The FAA would also work with Indian officials to help the country regain the Category 1 rating, FAA Administrator Michael Huerta said in a statement.
India has been working to support the growth of its aviation market, where passenger numbers are forecast to triple to more than 450 million by 2020. The government eased rules in September 2012 to allow foreign airlines to invest in local carriers and also spent billions of dollars to upgrade more than a dozen airports.
“The timing of FAA decision is unfortunate,” said KPMG’s Dubey, who is based in Gurgaon, near New Delhi. “We need to address the genuine safety concerns highlighted by the FAA.”
Under the International Convention on Civil Aviation, also known as the Chicago Convention, each country is responsible for the safety oversight of its own carriers, according to the FAA website. The agency assesses the civil aviation authorities of nations that have airlines operating to the U.S. to determine whether their oversight meets global standards.
The FAA program focuses on a country’s ability, and not an individual airline’s, to adhere to the standards and recommended practices for aircraft operations and maintenance set up by the International Civil Aviation Organization, a United Nations agency.
“We need a fundamental restructuring of our safety regulator,” CAPA’s Kaul said. The FAA decision is a “telling comment on how seriously we take safety.”
--With assistance from Robert Wall in London, Alan Levin in Washington, Kiyotaka Matsuda in Tokyo and Subramaniam Sharma in New Delhi. Editors: Vipin V. Nair, Anand Krishnamoorthy